Banca Sistema S.p.A. (BST) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining the full year 2025 results of Banca Sistema. Before starting the presentation, as you well know, Banca CF+ has announced a public offer for 100% of Banca Sistema shares. The offer period started on the 26th of January, and we kindly ask participants to avoid asking questions about the offer. I am pleased to comment on a very positive set of results in 2025, which allowed the bank to register the best profits of its history. The past year has been characterized by a strong increase in revenues and profits, a marked improvement in capital ratios higher than the level registered at the end of 2024 despite the new classification of past due registered in the first quarter in accordance with Bank of Italy findings, and finally, a positive trajectory of gross NPEs, which are declining quarter-by-quarter with an increase in coverage ratios. Let's start with full year operating trends. Revenues grew by 41% year-on-year, thanks to a solid growth in adjusted net interest income, which grew by 93% year-on-year, supported by a strong discipline in terms of asset spread and a positive evolution of cost of funding. The financial portfolio also contributed positively in the period. Net interest income was positively impacted by faster collections with a positive boost deriving from LPI linked to several receivables under ECHR ruling, among which one position accounted for more than EUR 40 million. The robust revenues helped to offset a sustained cost growth driven by some one-offs such as consultancy costs linked to capital plan and the tender offer, but also some credit-related costs, which helped us to mitigate credit risk further with a positive outcome in terms of risk-weighted assets. Cost of risk was more or less in line with last 15 years average and benefited from write-backs on few positions. Thanks to the above-mentioned dynamics, profits went up by 68% year-on-year, totaling EUR 42 million, the best-ever result for the bank. One of the most significant aspects of the period was the bank's ability to achieve strong profit growth while simultaneously absorbing the negative capital impact of the reclassification of past due loans that occurred in the first quarter of 2025. As a matter of fact, gross NPEs grew in the first quarter by 75% quarter-on-quarter due to the new classification of past due loans in accordance with Bank of Italy findings related to mitigants adopted by the bank to reduce the effects of new default rules. Several actions undertaken since the start of the year allowed the bank to reduce gross NPEs, which declined by 27% from the first quarter of 2025 with a sharp acceleration in the fourth quarter with a decrease of 31% quarter-on-quarter, thanks to the collection of receivables by a municipality that had emerged from conservatorship status and was the subject of a ruling by the European Court of Human Rights, which imposed the government to ensure the enforcement of judgments that had not been complied with by the Italian debtor, but we will elaborate on this point later on during the presentation. Let me remind that despite the reclassification of those loans as past due, the credit risk remains unchanged as 87% of past due loans refers to public administration. On the capital side, all the actions undertaken in 2025, including among the others, SRT, Disposals, New Securitizations, Faster Collections all part of the capital plan allowed the bank to increase year-to-date CET1 ratio and total capital ratios, bringing CET1 ratio and total capital ratio, respectively, to 15.1% and 17.8%, well above minimum capital requirement and about 180 basis points higher than year-end 2024, when the reclassification of past due loans was not yet included in the figures. As for funding, retail funding still represents 70% of total funding. Term deposits decreased double digit due to lower funding needs in line with loan book evolution. Cost of funding at year-end 2025 was below 3% for the first time since 2023. Turning to commercial performance, factoring turnover decreased by 13% year-on-year due to lower receivables bought from the Farma sector, which were ensuring low returns and lower Superbonus contribution as expected in our plan. It's worth to highlight that turnover decrease was higher at the beginning of 2025 or equal to minus 20%, year-on-year. But quarter-by-quarter, we have been able to improve the trend. As for salary and pension loans, the outstanding went down by 19% year-on-year, driven by lower volumes and repayments and with a positive trend in margins, thanks to the decalage of legacy portfolio. Pawnbroking is growing at a healthy pace, thanks to portfolio acquisition and margin expansion. Turning to the performance of the factoring division. Turnover decreased by 13% year-on-year due to lower exposure to national health service sector to reduce the risk of past due increase. Much lower receivables from Superbonus also negatively impacted the fiscal year 2025 due to the expiry of the tax shield by the government, which implied as expected, lower receivables, which could be bought. The decline in outstanding minus 12% year-on-year can be attributed to more selective new production higher collections and some disposals. Non-recourse component accounted for 74% of the total outstanding, while tax receivables accounted for 10%. In terms of the breakdown by obligor, Public Administration accounts for 48% of the total portfolio. The remainder consists of corporates, public companies and companies pertaining to the entertainment business. Moving to Slide 4. CQ dynamics are in line with what was envisaged in the plan, and we are ahead of 2026 targets as for credits outstanding. Turnover decreased by 27% year-on-year and together with repayments helped to obtain a decrease of 18% year-on-year of the stock of CQ loans, which reached EUR 573 million. The private sector accounts for 18% while public sector employees and retirees account for 82% of the total. As for the pawn loans business, outstanding continues to grow equal to plus 8% year-on-year with total turnover, including renewals equal to EUR 257 million in 2025 or plus 16% year-on-year. The division is keeping its growth strategy through organic growth and acquisition of portfolios. The evolution of the outstanding has been impacted by a higher number of auctions, which have been done in the year to reduce the stock of past due loans. I turn the floor over to Ilaria to comment in detail the balance sheet and income statement numbers. Please Ilaria.

Thank you, Gianluca, and good afternoon. Total assets decreased year-on-year by 7% due to lower customer loans, together with lower Superbonus loans. The 12% reduction in factoring outstanding was due to lower turnover as well as some contractual resolutions disposals and finally, higher collections, while the 18% reduction in CQ loans was driven by lower turnover and repayments, but also EUR 60 million disposals carried out in the second half of the year. Pawn loans kept growing with a plus 8% year-to-date, also thanks to EUR 8.9 million portfolio acquisition and despite higher number of auctions completed. Italian government bonds classified in the held-to-collect category slightly decreased year-to-date due to the expiry of some bonds and amounted to EUR 50 million with a duration of 26 months. While the bonds classified in the Held-to-Collect and Sell category increased by EUR 374 million year-on-year and amounted to EUR 1,154 million and have a duration of slightly more than 16 months due to customers decreased by 8% year-on-year, driven by lower repos with customers and lower terms deposits. The decrease in term deposits was driven by lower funding needs due to lower loans and helped to further reduce interest expenses. Turning to revenue performance. Total gross income increased by 2% year-on-year led by factoring, which benefited by the collection of late payment interest linked to some position related to European Court of Human Rights among, which one position allowed us to cash in EUR 103 million in the fourth quarter with a positive impact through P&L equal to about EUR 34 million and related to late payment interest, which were off-balance sheet. The increase in gross income together with lower interest expenses helped to boost total net revenues by 41%. As far as factoring, commercial loans and tax credit revenues were down year-on-year while late payment interest from legal action went up year-on-year, thanks to higher contribution from extra collection component, which more than compensated lower revenues from accrual. The full year figures were also impacted by EUR 2.1 million loss from disposal of receivables classified as past due completed in second quarter. The LPI from legal action include a portion of LPIs related to few positions linked to ECHR rulings, most of which are still off-balance sheet. Extra judicial interest also grew in 2025. Superbonus revenues amounted to EUR 29.9 million, of which EUR 28.5 million from trading Superbonus. As regards to adjusted income margin, factoring margins increased year-on-year, thanks to the collection of receivables linked to ECHR rulings and in particular, the big position collected in the fourth quarter, I was referring to few moments ago. Positive trend also in pawnbroking, plus 210 basis points year-on-year and CQ business, plus 60 basis points year-on-year. Looking at the breakdown of total income, adjusted net interest income increased by 51% year-on-year, thanks to an increased factoring interest income contribution, thanks to pawnbroking, higher revenues from financial portfolio and significantly lower interest expenses due to lower stock of deposits and lower cost of funding, which dropped from 3.79% for full year 2024 to 2.95% for the full year 2025. In details, factoring posted interest income contribution of EUR 122.2 million versus EUR 107.3 million in 9 months 2024, pawn loans increased to EUR 18.5 million from EUR 14.9 million. CQ stood at EUR 17.9 million slightly down from EUR 18 million. Treasury portfolio was EUR 29.5 million, up from EUR 22.7 million. Trading Superbonus was slightly down year-on-year and equal to EUR 28.5 million from EUR 32.9 million, 1 year ago. Adjusted net interest margin was supported by significantly lower interest expenses, EUR 114 million, down from EUR 146 million. Commissions were slightly up on a year-on-year as higher fees from pawnbroking and servicing offset lower commissions from factoring, which had benefited from a few big tickets in 2024 with significant fees attached. Overall, total income grew by 41% year-on-year. The bottom right chart, which represents the contribution to total income by business line, where the contribution of treasury portfolio is allocated to factoring and CQ shows a relative increase of pawnbroking and a slight positive contribution to total income by CQ business after several years of negative figures. Turning to the cost base. Total costs have grown 18% year-on-year, driven by administrative expenses, while personnel costs were slightly up year-on-year. Administrative costs grew by 30% year-on-year and include non-recurring consultancy costs, for example, related to the Capital Plan and other actions requested by Bank of Italy, but also some credit-related costs such as credit insurance and SRT premium. Admin expenses also include higher costs related to Kruso Kapital and risk provisions. The increase in FTE is primarily linked to control functions. The next slide shows the contribution of individual business units to group profit, which stood at EUR 42.3 million. Factoring closed with a net profit of EUR 46.5 million. Still negative instead was the contribution of the CQ division, but the net loss reduced to EUR 10.4 million. Pawnbroking division registered a positive contribution with EUR 6.2 million net profit figure, which is already net of minorities. All the figures include the contribution of the treasury portfolio allocated to the business divisions. As for funding evolution, the bank decreased retail funding year-on-year with term deposits at EUR 2.26 billion, vis-a-vis EUR 2.56 billion in 2024. The decrease has been guided by the bank to achieve a more efficient funding structure given the decrease in loans. The weight of retail funding on total funding was equal to 70%, stable year-on-year. In terms of cost of funding, it was equal to 2.95% vis-a-vis 3.57% for full year 2024 with the cost of wholesale funding at 2.63%, lower than retail funding, which was equal to 3.07%. I now turn the floor over to Gianluca for some remarks on asset quality and capital ratios.

Thank you, Ilaria. As of 31 March 2025, the bank classified past due loans in line with the request made by Bank of Italy to exclude some mitigants in the application of new definition of default rules. The bank has since then taken various managerial actions aimed at reducing the stock of past due loans. Among the actions undertaken, it's worth mentioning faster collections, contractual resolutions, portfolio disposals. All those actions allowed the bank to sharply decrease past due loans by minus 27% vis-a-vis the level registered in the first quarter 2025. The collection of one position related to municipality exited from conservatorship and under ECHR ruling has helped the bank to further reduce nonperforming loans at a rate equal to minus 31% quarter-on-quarter in the fourth quarter of 2025. Total gross past due loans at year-end were equal to EUR 221 million, confirming the trend in place, which sees a reduction of past due loans quarter-by-quarter. The pickup seen in the third quarter and past due was due to the reclassification of one position from bad loans to past due loans. Position then collected in full in the fourth quarter with EUR 103 million cash in and the booking of about EUR 34 million LPI through P&L. The amount of total LPIs off-balance sheet linked mainly to municipalities and conservatorship are still equal to EUR 61 million. We remind that the new classification of loans requested by Bank of Italy does not change the risk profile of the bank as 87% of past due loans consists of exposure to public administration. Cost of risk in 2025 stood at 39 basis points. From the perspective of capital ratios, we have done an excellent job. Thanks to the improvement in Asset quality, portfolio disposals, SRT completion, new securitizations and faster collections, we have been able to reabsorb the capital hit registered in the first quarter 2025 and to further boost capital ratios to a level that is higher than year-end 2024, when the reclassification of past due loans was not yet implemented. In particular, CET1 ratio and total capital ratio are today almost 180 basis points higher than year-end 2024 with capital buffers vis-a-vis SREP equal to circa 500 basis points. Capital ratio phased in does not take into account positive HTCS reserve for EUR 4.3 million net. In conclusion, we are very happy for having delivered such a positive set of results, driven by solid revenues and cost of risk under control. The efforts provided to mitigate credit risk to improve collections and reduce NPEs have brought to much more solid capital, which should support future growth. Dividend ban by Bank of Italy has been confirmed for the time being, but today, capital position makes us more confident to be able to deliver sustainable, positive set of results in the future. Operator, now, we are ready for Q&A session.

[Operator Instructions] First question is from Irene Rossetto, Banca Akros.

A couple of questions from my side. Could you provide more details on the one-off booked this quarter related to the municipality? Are there other exposures like this? And how might they affect future profitability? And then the second is about Banca Farmafactoring. They recently recorded a significant one-off provision related to a negative court ruling on its receivable. Do you have a similar rulings on any part of your portfolio? And if so, can you quantify the amount?

Thank you for the question. In terms of the collection of the one-off exposure or one of the largest exposure we have simply, we got the ruling from the court of in Strasbourg. After the ruling, we send an injunction to pay decree against the Italian government. And at the same time, the city went out from the procedure of conservatorship. And so we took action also against the municipality. Then the government in their government balance sheet that has been approved, they put forward an amount -- 2 amounts, actually, one that was a EUR 2.2 billion for any cases, including negative ruling of European court that government suffered. And second, also a specific amount for a city that exit conservatorship where gave the money also to the municipality. The sum of all these actions end up to -- for the municipality to pay us the full capital plus 80% of the LPI that has been accrued at that stage. We have other cases out of European court. Some has been already resolved by the court, and already been paid by the court by the authorities. Other cases, just to give you a rough amount, there are about 30 positions that are at court in Strasbourg at different stage for an amount of about EUR 30 million out of which there are associated with some impairment, in particular, if they are connected to consortium that by the Strasbourg court, the consortium are treated exactly in the same way of municipality. Those outstanding include -- doesn't include the LPI, the late payment interest that are all off-balance sheet and amount in about EUR 30 million. So as I said before, during the presentation, the amount of LPI off-balance sheet linked to city municipality in conservatorship are about EUR 61 million. Out of those amounts, EUR 30 million off-balance sheet are already at the court in Strasbourg. So I hope that gives you the picture. In terms of negative court ruling, while I'm not here to compare with other banks, I can tell you our numbers without any comparison. Our net exposure on which the bank has received the negative court ruling are about EUR 24.5 million, not yet returned to the original seller. All ruling in order also to preserve the rights of the creditor are under appeal, as all the banks that do factoring we all maintain the right to return the receivable to the original seller, so what we call the contractual resolution. What I can say is that the Banca Sistema usually does not even wait the negative ruling to do the contractual resolution when there are opposition by the debtor that our legal team consider grounded, so the ruling may come as a negative event, but we have already resolved the contract, and we already returned the credit to the original seller. This is part of the daily regular operational business. And in general, this opposition negative ruling are linked to utility bills that we have to purchase from largest Italian utility company with a very solid credit standing. What happened is that as soon as they reconcile the position, they pay us the capital, the contractual interest and any other legal expenses that we have incurred. So what happened is that when we resolve the contract and we put back the credit to the original seller, we switched the exposure from the public administration to the original seller with all the consequence in terms of RWA. And this is what you see in our number, part of our exposure that is not public administration are linked to resolution that we have contractual resolution that we have put against the original seller, mainly utility companies. And we also take action against the utility companies if they don't pay us. So this is how only process. But just to give you the -- going back to the original number, the amount of negative ruling where we haven't taken yet the contractual resolution is EUR 24.5 million.

Next question is from Lorenzo Jacome at Intermonte.

I have actually two. So the first one is if you can share with us some kind of update about your talks with the Bank of Italy regarding the dividend ban, given that your capital position is strongly improving quarter-by-quarter and you're reducing your past due exposure? And the second one is, if you could, I mean, share what are your thoughts about the trends in the salary-backed business going into 2026?

My personal thought because we don't have anything specific or any date where we can say that there will be any ban is that, as you know, there is a public offering ongoing. And I don't think that anything will happen until this will end in one way or in the other. In terms of salary-backed loan, we continue to maintain the position of originating the business only at yield level that we consider appropriate. And at the same time, when there are opportunity to sell portfolio, we will also sell portfolio, maintaining an outstanding that is not increasing, but maybe also declining as we see that we can allocate capital to other asset class that have a higher return in nowadays because the things may change over time. In the past, the salary-backed loan were with a very interesting return, now less. So things can change. So we can keep -- we will keep active the network, the origination, we give product, but we don't necessarily keep in our book anything we buy, but we originate. But if there are opportunity, we originate and sell.

Next question is from Davide Rimini, Intesa Sanpaolo.

I've got just a few. One is back again on the announcement of your competitor earlier this week. They also sort of took a more prudent assumptions in terms of LPI collection time. I know that sort of you are coming up with the end of the year with this well flagged collections from the municipality in conservatorship. I was just wondering whether you might comment on their terms and moving from 2,100 to 2,400 days and whether sort of you might -- we might infer anything out of the market standard practice. The second question is regarding operational trends in factoring. In the presentation, you highlighted business contraction for the full year, but recovery in the last part of the year, which is seasonally the strong and heaviest. I was wondering whether you might flag to us what you expect from -- in 2026? And the last question is instead on securitization is whether so that you might update us on the prospect for the securitizing some receivables in the entertainment sector.

Okay. Thank you for the question. So first of all, in term of what we can call it the time value. Let me say that now everybody has the same methodology on the calculation of LPIs and putting that on accrual. What we do is -- and we always did is to start to consider the accrual only for position that we already take legal action at the time when we take legal action. So we purchase the receivable. We don't do anything. We try to collect in case -- and that may go on for a few months, in some cases, also several months. If we are not able to ordinarily collect. We started the legal action. And at that point, we started to put the late payment interest on accrual. So if and when the legal action will be initiated is when we take the accrual in this context is also to work to clarify that expected collection time are regularly updated on an annual basis with continued [indiscernible] testing with a differentiated assumption for each procedural stage of the quarter. Now that all to say that you don't necessarily can compare apple and apple, but this is -- each has a different number. But just to try to find the comparison, we are currently for the position that are in legal action, we are, on average, assuming a time value of 2,880 days corresponding to 7.9 year. Again, from the date we start legal action. If we consider the due date of the invoice, so the original due date of the invoice, we are at around 3,000 days, okay, in terms of time value. The LPI accrued on the balance sheet for us is EUR 76.8 million. That is -- because that is the result. In terms of turnover, if I understood correctly the question. We had a good start of 2026. Our assumption is to increase the turnover compared to the previous year. And this is also thanks to the securitization that we have put forward on the entertainment business, we have done 2 securitization, but these are not securitization of only existing receivables that we have in our book. These are ramp-up securitization. So we put forward structure where is the securitization that directly buy the receivable from the client from the mainly football clubs in the entertainment space directly in the securitization. And the securitization issue a senior note and the junior note. So there is a commitment for a junior note from the junior investor and a commitment of the senior note for the senior investor, which is us. Both the securitization that we have done work in the same way. That allow us to increase the return -- the RORC, the Return on Regulatory Capital because the capital consumption is lower consider that we only own the senior component, still with the yield that is interacting and increase the return on regulatory capital, allowing us to have more firepower also at the international level in this field. We have also considered and we had worked on an idea of securitization of past due, something that certainly is something that we consider. But just to give you the idea, if we consider our current portfolio that is in past due, we are talking an amount that is lower than EUR 100 million of capital with the impact in case we do it to the P&L at 0 because the value, the price is in line with our book value consider that our LPI component that has been accounted in our balance sheet is not particularly high. So any transfer will not imply a net loss. I hope I answered to your question.

[Operator Instructions] Next question is a follow-up from Davide Rimini, Intesa Sanpaolo.

Sorry, just to follow-up on the Superbonus activities you highlighted as in the previous calls that the business would have been and is actually sort of fading as the benefit of the fiscal benefit is being gradually disappearing. I just wonder whether also here, you might share with us sort of the projection for this year?

Clearly, there are no longer much to buy from the market. So the Superbonus, we are continuing to amortize what we have in our book. There could be a few further millions of possible acquisition of portfolio of work that are part of the Superbonus that were not yet invoiced. So that is the only part of -- that is going to be sum up in the term of Superbonus. So we will continue to have the benefit of what we bought in the past for the next couple of years and a few -- not much more to add. All the rest of our growth will come from factoring with public administration and also the entertainment and some also of private with guaranteed insurance on the back of it.

[Operator Instructions]. Mr. Garbi, there are no more questions registered at this time.

So thank you very much to everybody. As you know, if the public offering will go through, I could say that I left the Banca with the best ever result since I founded. Thank you.

Ladies and gentlemen. Thank you for joining. The conference is now over. You may disconnect your telephones.